These so-called “net metering” policies are adding up to a headache for electric company officials, who are watching monthly utility income shrink as more and more solar panels crown the homes in their service areas. (Take the related quiz: “What You Don’t Know About Solar Power.”)

Many solar advocates see this as a positive demonstration that renewable technology is on its way to revolutionizing the deeply entrenched fossil-fueled energy system. But utilities argue that solar households are avoiding paying their fair share for the electric grid they still rely on, and the long-term investments the companies have made in power plants and the delivery grid. Solar rooftops represent “the largest near-term threat” to the utility business model, a “disruptive challenge,” even though they still represent less than one percent of the U.S. retail electricity market, an industry study said earlier this year. (See related story: “Desert Storm: Battle Brews Over Obama Renewable Energy Plan.”)

A backlash has begun in the leading U.S. solar markets, with utilities seeking to scale back net metering or increase what they charge solar households.

In California, the number one state for solar energy, a months-long lobbying battle raged until this fall, when lawmakers crafted a compromise. Sacramento preserved net metering for now, but directed the state’s Public Utility Commission to come up with a new program by 2017 that ensures nonsolar customers don’t get stuck with an unfair burden of paying for the grid. Next door in Arizona, regulators also deferred a showdown, voting in November to allow the state’s largest utility to tack an additional fee, about $5 a month, on the bill of customers with new solar installations. It’s far less than the $50 monthly surcharge Arizona Public Service originally sought.

And in Colorado, the state Public Utility Commission is weighing a request by the state’s largest power provider, Xcel Energy, that the credits that solar households see on their utility bills for rooftop-generated energy be slashed in half. Hearings are scheduled for early February, with a decision sometime in the first half of the year. Skirmishes over the issue also have erupted in Louisiana and Idaho.

“Net metering allows consumers to build a system on their roofs that is enough to offset their electricity needs,” said Bernadette Del Chiaroexecutive director of the California Solar Energy Industries Association (CALSEIA), the state’s oldest and largest solar trade association. The organization’s web site calls the overhaul now being weighed by the state PUC both “the greatest opportunity and threat to the solar industry.” Net metering is “really critical for making solar make sense and work in a residential sector,” said Del Chiaro.

But utilities argue that net metering enables solar customers to benefit from a reliable electric grid without paying for its use. “It’s not about lost revenue . . . We want to make sure the grid is maintained, that it can be enhanced, and that cost shifting does not occur,” said David Owens, executive vice president of business operations at the Edison Electric Institute (EEI), a Washington, D.C.-based association that represents investor-owned utilities. (See related story: “Post-Hurricane Sandy, Need for Backup Power Hits Home.”)

Solar Boom

The net metering conflict has erupted because of one important development: Solar is now within the price range of far more customers. Since 2008, the price of the photovoltaic (PV) panels that convert sunlight to electricity has fallen by 75 percent, and solar installations have multiplied tenfold. Some homebuilders even include rooftop panels as a standard feature on new homes. Making solar even more affordable is the proliferation of solar leasing companies, which build and retain ownership of rooftop systems; customers can avoid making large upfront payments for installation, instead paying a monthly lease or power purchase fee. Two-thirds of solar installations in California in the past two years were done under lease agreements.

The third quarter of 2013 turned out to be the largest ever for residential PV installations in the United States, with the amount of additional new capacity up 35 percent over a year ago. This year is likely to be the first time in more than 15 years that the U.S. installs more solar capacity than Germany, the nation with the most installed solar capacity, according to GTM Research forecasts. That puts the U.S. third in the world in pace of solar installations, behind China and Japan.

In the United States, there were at least 302,000 “distributed” solar installations—essentially, systems on rooftops, not at power plants—installed across the United States in 2012, and the number could grow by a third in 2013, according to the Solar Electric Power Association (SEPA). More than 99.5 percent of those installations were net metered. Those solar systems add up to 3,440 megawatts of capacity, nearly as much as the largest nuclear power plant in the United States, Arizona’s Palo Verde. But it still represents a tiny fraction of U.S. electric power plant capacity, 1.2 million megawatts spread through 19,023 generating stations.

Net metering policies, currently enacted in 43 states and encouraged by U.S. law, require utility companies to credit customers for solar energy they generate in excess of their own household or business needs. When a rooftop system delivers this extra energy to the grid, the customer is compensated with a bill credit, often at the same rate per kilowatt-hour that customers pay for power from the grid.

Adam Browning, executive director of the nonprofit Vote Solar Initiative, scoffs at the higher figure, which includes not only energy the solar households send to the grid, but the power they keep for their own use—energy that never touches the grid and has no impact on other ratepayers. “It’s the functional equivalent of you turning off your lights and getting accused of raising everyone else’s rates,” Browning said.

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